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Looks cool. It's fun to play with. The problem I have with it is that you don't actually need a visual interface for doing this-- a much better system would be one that automatically aligns your images to maximally fill the most efficient rectangle and gives you all of that as output. As it is, you can accidentally cause images to overlap, or simply do a bad job of picking the best way to put the puzzle together.

There's nothing wrong with using this, but the fun interface is actually a downside in terms of really using this for productivity.

Of course, this is still going to be faster than doing it all manually and figuring out all of the coordinates yourself.

No biggie, I was just teasing you. I figured it was something like that.

Anyways, I don't do much sprite work, more with existing sprites, or if I have call to make one, it's only two images. But going from what Daniel says are the requirements for a good sprite tool, that one at spriteme.org looks like it's ideal. I'm not sure if it can shrink the finished sprite for you or not. But any good image editing program can mass shrink the component images before you put them into a sprite. And in most cases you would want to custom resize/retouch each image to the size and look you need them in (if they aren't already) before making the sprite. Or you can shrink and/or retouch the sprite yourself after you make it and use Beverley's method (from that same thread of yours I linked to in my previous message) for finding the coords from it afterward.

I'd think you'd always want to use full quality images when designing your sprites layout. Then you'd want to compress that final image as necessary. Otherwise you will be recompressing (or worse, uncompressing) the already compressed images. An exception would be an image format that retains the same level of compression when edited, such as a GIF image with a particular color palette, but even then there's no downside to working with uncompressed images and compressing it at the end-- it would give you the most options for the final look and you could consider all images when determining the palette and/or level of compression.
In fact, compressing the final image is one disadvantage for sprites. By using a single image, you're forced to use a single kind of compression. Perhaps one image would be a smaller file if saved as a GIF with certain settings, while another requires more colors and would look fine at as a "low" quality JPEG. And another might need to be very high quality, so you'd want to use a minimally compressed, lossless PNG. Of course in most cases sprites will be the same kind of images (photo gallery thumbnails, or icons, etc.).

A well designed sprite contains only images that are all suited to the same file format (usually GIF or PNG, but sometimes JPEG) and that all benefit most from the same type(s) of compression.

Agreed. But even then you might have a situation where you'd want different compression settings on the images-- some thumbnails might look fine at a lower JPEG compression quality than others, or some icons might need fewer (or just different) palette colors than others in GIF format.